Most prospective entrepreneurs think that a business plan is only necessary if they plan to apply for a loan, grant, or another form of venture capital. While a business plan is vital for securing funding, it is also necessary for other purposes. Therefore, my answer to this question is a resounding “yes.”
Any serious business owner needs a business plan. A business plan is necessary for all types of business endeavors, including corporations, limited liability companies, sole proprietorships, and even side hustles. Taking the time to develop a sound business plan from the beginning can save you much time and frustration in the long run.
Keep in mind that a business plan can be simple. This is especially the case for side hustles and sole proprietorships. However, regardless of the type of business, it should include basic elements. These basic elements will give you a solid foundation on which to build an informed business structure. Here are some elements that you should include in your business plan.
Mission and Vision
Having a sound mission and vision for your business is crucial whether you write it down or not. You should have a purpose (or mission) for starting your business. And this purpose should go beyond simply wanting to make money. The desire to make money rarely keeps an entrepreneur motivated beyond a few short months.
It typically takes a small business about 2-3 years to start realizing a profit. It can take anywhere from 7-10 years for a business to realize a true return on investment. While it does happen in some instances, overnight business success is a rarity. It takes the average business at least two years to begin seeing some type of financial gain. And this is the amount of time for the average business – this means that some businesses will take even longer.
I emphasize this point because if you are solely in it for the money, you will easily turn away if you don’t start realizing a profit within the first few months. Sadly, I see this happen with some of my clients and others quite frequently. In fact, this is why they often come to me because they need motivation and inspiration to keep going.
Having a sound mission and vision can curtail some of the angst that new business owners experience during the start-up years. A mission statement outlines why you are in business.
What is your purpose or overall goal that you want to achieve from your business? Knowing your reason “why” will keep you going through tough times. This indicates what you are truly passionate about, and your passion will drive your motivation.
A vision is about the future trajectory of your business. How do you envision the business 5, 10, or 20 years from now? A clear vision is also a strong motivator for seeing your business through. It paves the road ahead for you and your stakeholders.
Conducting a viable market analysis is also crucial to your business’s success. You need to understand the market that you serve in regard to consumer likes and dislikes, trends, competition, etc. There is no shortcut for this step, as it will help determine if your business model even makes sense.
A business should never be developed solely based on the preferences of the business owner. Doing so could be a grave mistake as your products or services may not sell well. While much of your creativity and individual expression will go into developing your business, you still need to be very aware of what’s currently in demand.
This is where market research comes into play. Performing a market analysis can help you understand your target market so that you can better serve their needs. A well-rounded market analysis should include the following elements:
- Description of your target market
- Traits or characteristics of your target market
- Size, growth, and other trends impacting your target market
- Prospective profitability of your niche market
- An analysis of your greatest competitors
- Legal and regulatory issues impacting your niche market
You can conduct your own market analysis or have someone do it for you. There are plenty of excellent online resources that can give you vital feedback about your target market. I strongly recommend that you do some research on your own in this area.
However, using a reputable company to perform this task can be even more helpful for you. This way, you can reduce the propensity for bias in your own research. It is easy for us to skip or ignore information that is not favorable to our goals. Though such information is often useful in helping us make truly informed decisions.
For instance, if you are keenly set on starting a particular business, you will most likely look for information that encourages you to do so. You may ignore vital information that warns you about the potential pitfalls of the niche market that you wish to enter. This could be detrimental to the success of your business. Using a market research company can greatly decrease the potential for bias in such instances.
Marketing and Sales Strategy
Thoughtfully integrating a marketing and sales strategy can be beneficial to you in a number of ways. Marketing is all about getting the word out about your business. Many business owners think that they will simply build a website, YouTube channel, podcast, physical storefront, etc., and people will just show up. This is not the way business growth generally works, especially in today’s competitive market.
You have to let people know that you are open for business. Even more, you have to let them know what you do and why you are different from others who do the same thing. You also have to let them know how to acquire your products or services. These elements are all part of a marketing strategy that can take considerable ingenuity, time, and money to develop fully. You need to know this information before you start your business.
A sales strategy incorporates the elements of pricing and selling products and/or services. The first thing that you need to think about is how much you plan to charge for your goods. This is probably one of the greatest mistakes that new business owners make when they first start.
They usually set their prices based on the market value rather than the true value of their products or services. In other words, they scan the prices of similar products or services in their niche market and set their own rates using this information.
However, they should be more focused on the actual value of the product or service. The intrinsic value of a product or service involves many elements, including the cost of supplies, materials, overhead, time, expertise, labor, craftsmanship, etc.
The sales strategy outlines who will be involved with selling and marketing the business, what sales channels will be used, etc. It is critical to ascertain these details upfront as they will help shape the overall success of your business.
Having a realistic financial plan for your business is also imperative. Your financial plan should outline the estimated start-up costs of your business and costs for future years. It should also include your plan for securing financial capital to start your business.
This is another common area of frustration for new business owners. They often fail to count up the cost of doing business and are unable to maintain a sovereign business structure because of a lack of funding. That’s why you need to outline your financial strategy before you get started.
As you see, it is important to plan for many important elements pertaining to your business before you get started. This doesn’t necessarily have to be outlined in a specific style or format. However, you should give thoughtful consideration to the above-mentioned and other aspects of your business in order to avoid unnecessary mistakes. This is why it is vitally important to have a business plan.